Euro Halts Drop as ECB Keeps Interest Rates, QE Policy Unchanged

  • Shared currency strengthens versus most major counterparts
  • Scope remains for Draghi to comment on easing measures

ECB Holds Stimulus Steady, Benchmark Rate Stays at Zero

The euro snapped two days of declines after the European Central Bank refrained from expanding its quantitative-easing program and left interest rates unchanged.

The shared currency rose against 13 of its 16 major counterparts and was little changed versus the dollar. Leaving the main interest rates unchanged was predicted by economists. There’s still scope for ECB President Mario Draghi to announce more easing measures when he addresses a press conference at 2:30 p.m. in Frankfurt.

The euro was at $1.0982 as of 1:08 p.m. in London, having weakened more than 2 percent against the dollar this month.

Traders saw the euro decline as they raised bets on a Federal Reserve interest-rate increase. At the same time, they turned their focus to when the ECB will begin tapering its 1.7 trillion-euro ($1.9 trillion) QE program, triggering a selloff in bonds and heightening the tension before Thursday’s press conference.

Of the economists who expected the ECB will change the parameters of its QE plan, only 17 percent predicted it would do so at this month’s meeting, with the majority forecasting it will happen in December, according to a survey by Bloomberg. While inflation has started to pick up in the euro region, the poll conducted Oct. 7-14 suggested the ECB won’t start to phase out asset purchases before the second half of 2017.

“Investors expect the October meeting to confirm that the ECB is looking into options to boost the longevity, the size and the scope of asset purchases,” Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London, said before the announcement. “The euro will probably squeeze higher after Draghi’s press conference. We suspect he could struggle to put to rest market fears about the approaching end of the QE program.”

Even if no further stimulus is announced Thursday, it still begs the question of whether Draghi will fine-tune monetary stimulus at future gatherings.

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